Budg Ting

7/29/2019 Budg Ting

1/81

A

STUDY ONBUDGETING AND BUDGETARY CONTROL

AT

TECUMSEH PRODUCTS INDIA PRIVATE LIMITED

A CASE STUDY ON

TECUMSEH PRODUCTS INDIA PRIVATE LIMITED

HYDERABAD

UNDER PARTIAL FULFILLMENT FOR THE AWARD OF

MASTERS DEGREE IN BUSINESS ADMINISTRATION

BY

K.ANTHONY JOSEPH

(05508119)

ST.JOSEPHS PG COLLEGE

(AFFILIATED TO OSMANIA UNIVERSITY)

(2008-2010)

1

7/29/2019 Budg Ting

2/81

DE CLARATION

I Mr.K.ANTHONY JOSEPH, a bonafide student of ST.JOSEPHS P.G COLLEGE

affiliated to OU, Hyderabad would like to declare that the entitled project work A

STUDY ON BUDGETING AND BUDGETARY CONTROL AT TECUMSEH

PRODUCTS INDIA PVT LTD is being carried out in original and submitted by

me in partial fulfillment for the award of Master of Commerce from OU-Hyderabad.

The results and facts embodied in this thesis work have not been submitted to any

other University or Institute for the award of any degree or diploma.

Date :

Place : Hyderabad (K.ANTHONY JOSEPH)

2

7/29/2019 Budg Ting

3/81

ACKNOWLEDGEMENT

I take this opportunity to express my gratitude and wish to thank all those who were

responsible in helping me to undertake this project work.

I sincerely thank Mr. Sanjay Tangri (Senior Manager-Accounts Dept) Tecumseh

products India Pvt. Ltd., for giving me an opportunity to work on my project in

consensus to this companys progress and be a part of it for the project work.

It is my duty to place on record my deep gratitude for Mr. Sunil Kumar, Finance

Manager (Accounts-Dept), Tecumseh Products India Pvt. Ltd., Hyderabad, for

permitting me to undertake this project work. I also would like to express my heart

felt thanks to him for all the guidance and support he has given me during the course

of this project work.

I wish to express my cordial thanks to Mr. Raju (Accounts-Dept), my internal guide

for his active guidance and well support to cross the difficult ladders in accumulatingthe information.

I also wish to thank Mr. Sambasiva Rao (EOU), for referring me to do the project

work, I evenly express my sincere gratitude to Mr. A.Rajeshwara Rao, Manager-HR

(Dept of HR), for providing me an opportunity, immediately on my approach.

I sincerely thank Mr. Chandrasekhar, and all other staff members of Tecumseh

Products India Pvt. Ltd. for giving their at most co-operation and timely help to have

better study at the company premises.

I wish to convey my sincere thanks to our project guide Ms.Sangeetha and all other

faculty members of M.B.A for their sustained help, encouragement, and coordination

during the period of my project work.

3

7/29/2019 Budg Ting

4/81

ABSTRACT

This project titled A Study on Budgeting and Budgetary Control at Tecumseh

Products India Pvt. Ltd. is a study conducted at Tecumseh products India Pvt.

Limited, Hyderabad. The purpose of the project is to study the budgetary system in a

Manufacturing Company.

The project work consists of introduction to budgets and budgetary control with

various advantages and disadvantages of the same. The study methodology adoptedwas both, interaction with both the concerned staff at Tecumseh Company and also

through various manuals and journals published in-house.

The objectives of the study being primarily to understand the budgeting system in a

manufacturing company (concern) and the advantages of the same. To assimilate the

budgetary control system adopted at Tecumseh, and to see the performance of the

company over a period of three years and make suggestions wherever necessary.

The study takes into consideration the budgeted estimates, the revised estimates and

actual figures for some of the important sources of budgetary variance like, sales,

consumption of raw material, salaries and wages etc., The relevant figures are from

the years 2007 onwards which have been taken for the analysis.

The analysis of the budget variations primarily gives an insight into whether there has

been an over estimation or under-estimation of resources allocated, and the reasons

for the variations are evaluated through consultations with the concerned managers at

Tecumseh.

Suggestions have been made as to, how the existing system can be improved to have a

better control over the budgetary system in the organization.

4

7/29/2019 Budg Ting

5/81

INDEX

Particulars

Chapter No Page No.

1. INTRODUCTION (1-6)

1.1. Introduction

1.2. Scope of the study 1.3. Objectives of the study1.4. Research methodology1.5. Limitations of the study

2. COMPANY PROFILE (7-33)

3. REVIEW OF LITERATURE (34-53)

4. DATA ANALYSIS (54-70)

5. CONCLUSION & SUGGESTIONS (71-73)

BIBILIOGRAPHY (74-75)

LIST OF TABLES

5

7/29/2019 Budg Ting

6/81

Page no.

1. Budgetary Control 50

2. Production Budget 55

3. Production Cost per Unit 56

4. Actual Production 56

5. Production Variance 57

6. Direct Labour Budget 58

7. Actual Labour 59

8. Direct Labour Variance 59

9. Sales Budget 60

10. Actual Sales 61

11. Sales Variance 61

12. Budgeted Income Statement 62

13. Actual Income Statement 63

14. Income Statement Variance 63

15. Material Purchase Budget 64

16. Quarterly Sales Volume Budget 65

17. Quarterly Budgeted Income Statement 67

18. Quarterly Total Material Cost Budget 68

19. Quarterly Total Labour Absorption Budget 69

6

7/29/2019 Budg Ting

7/81

CHAPTER-1

INTRODUCTION

7

7/29/2019 Budg Ting

8/81

. 1.1. INTRODUCTION

A budget is a comprehensive plan of action expressed in

physical and financial terms. Its a blue print of a companys

financial estimates for the future. Budgeting forms the most

important part of the planning function. Its a system of planning

and control covering all the segments of an organization and also

giving a sense of direction to the goals and objectives of an

organization. A budget constitutes the principal instrument forprojecting the future cost revenues, which form an essential part of

the management accounting and the foundation of firms financial

control.

A budget system should be such that it becomes imperative

for the management to establish goals and objectives, define

policies, allocate resources, set targets, and try to take corrective

action if there are any deviations. A management is said to be

effective if it can accomplish the objectives of an organization. But it

is equally important for the organization to attain the objectives

efficiently with minimum amount of resource utilization. In order to

attain these set goals within a given set of constraints is a difficult

job; hence with the help of a proper budget one can achieve the

organizational goals and objectives.

8

7/29/2019 Budg Ting

9/81

1.2. SCOPE OF THE STUDY

The study is conducted with the available data from the

Annual Reports, Internal Reports, and other available data

from several interactions with the staff of Tecumseh Products

India Pvt. Ltd., and analysis was made accordingly.

The data is secondary in nature as the records and

statements, which shows their own limitations, and up to a

certain extent it is even said to be primary while the collection

of data regarding actual facts are collected from the

concerned staff.

The budgeting is done only for the next three years and it

clearly explains the limitation regarding the duration of the

study.

All the budgets are prepared in the Organization by the

concerned departments and they share the same as and when

they required for proper adjustments and necessary updates.

Hence the data collected from them is regarded as fair and

absolute. The intension behind preparation of budgets is to

forecast the sales and expenses to be incurred in the near

future and compare with actuals.

9

7/29/2019 Budg Ting

10/81

1.3. OBJECTIVES OF THE STUDY

To study the budgetary control system and techniquesimplemented in Tecumseh Products India Pvt. Ltd.

To study the performance of the company and various costcontrol techniques implemented and their impact.

To examine the feasibility of present system in TecumsehProducts India Pvt. Ltd.

To compare the present sales, production, raw-materials andothers with actuals.

To predict the better way of improving the sales forecasted inrelation to production.

To understand and assimilate the existing system and make

suggestions if any.

The organization was following till recent past mostly cost plus

system for its product pricing and was a leading manufacturer in

cooling and refrigeration compressors supplying not only to

domestic markets but also exports to various international markets

across the edges of the globe. Due to Liberalization and

Globalization, and the increase in competition from private players,

the organization is in a situation where it has to control its costs and

make proper use of the existing financial resources. Control of costs

is possible through an effective budgetary control system.

10

7/29/2019 Budg Ting

11/81

1.4. RESEARCH METHODOLOGY

Primary data it is primary data collected from thecompany records and one to one interaction withemployees of the company

Secondary data it is collected through literary booksannual report of the company and web based resources .

WEBSITES:

www.netmba/finance/capitalbudgeting.com

www.tecumsehindia.com

11
http://www.netmba/finance/capitalbudgeting.comhttp://www.tecumsehindia.com/http://www.netmba/finance/capitalbudgeting.comhttp://www.tecumsehindia.com/

7/29/2019 Budg Ting

12/81

1.5. LIMITATION OF THE STUDY

The day-todays cut throat competition in the world of

business, trade and commerce is leading to many complexities

which when is not predicted properly according to the fast growing

changes that are taking place in the market situations may result in

adverse progress and some times may leads to exit from the

industry or domestic markets.

To avoid these kinds of threats endangering the survival

prospects, there is a compulsion today to have a proper plan of

action in predicting the prices, costs, funding the proposals,

controlling the same and implementing the framed budgets and

utilize the scarce resources avoiding maximum extent of wastages.

Budget shows the real need to know the SWOT-analysis which

in turn is simply known as Strengths, Weaknesses, Opportunities,

and Threats. Following these guidelines it is very simple to make

proper budget allocations according to requirement and maketimely decisions. Budgeting and Budgetary control helps in this

context of dynamism.

Preparation of Budgets in various fields like purchases,

production, salaries and wages, and sales process of the company

on a monthly basis, quarterly and half-yearly basis gives effective

12

7/29/2019 Budg Ting

13/81

control system in financial management and thus makes the

management aware of the regular price changes.

CHAPTER-2

REVIEW OF LITERATURE

13

7/29/2019 Budg Ting

14/81

CONCEPT OF BUDGETNG AND BUDGETARY

CONTROL

Budget:

A budget is a financial and quantitative statement, prepared and

approved prior to defined period of time, of the policy to be pursued

during that period for the purpose of attaining a given objective. It

may include income, expenditure and the employment of capital.

In other words, a budget is a systematic plan for the utilization of

manpower and material resources. In a business organization a

budget represents an estimate of the future costs and revenues.

ESSENTIAL FEATURES OF A BUDGET:

1. Its a written plan of activities for the future period of time.

2. It is expressed in quantitative form, physical of monetary units

or both.

3. It relates to the income and expenditure for individual functions

of the business.

4. It is prepared for a definite period of time, usually for one year.

5. It relates to the future period for which the objectives or goals

have already been laid down.

6. It is prepared in advance and is derived from the long-term

strategy of the organization.

OBJECTIVES OF A BUDGET:

Budgets serve as a Blue Print of the desired plan of action.

14

7/29/2019 Budg Ting

15/81

Budgets help in reduction of wastage and losses by revealing

them in time for corrective action.

Budgets serve as means of communication. The organization

communicates the policies and targets to the managers in theorganization who are responsible to carry out the plan.

Budgets serve as the benchmark for controlling ongoing

operations.

Budgets help to coordinate, integrate and balance various

operations to achieve set objectives of the organization.

Budgets are a way of communicating to the departmental,

sectional, and divisional heads their responsibilities and

making them accountable to the same if any deviations from

the actuals arise.

Budgets facilitate centralized control with delegated authority

and responsibility. A system of control can be exercised by

having a plan against which the actual results can be

progressively compared and corrective actions are taken when

ever necessary.

Budgets compel advance planning. By having a formal

budgeting procedure, management is forced to look to the

future instead of living hand to mouth without any clear idea

or purpose.

Budgetary control:

Budgetary control is a system of controlling costs that

includes the preparation of budgets, coordinating with the

departments and establishing responsibilities, comparing actual

performance with that of the budget and acting upon results to

achieve maximum profitability. Its a very important activity to

ensure that the actuals confirm to the plans set through the

15

7/29/2019 Budg Ting

16/81

budgets. The meaning and purpose of setting of budgets will not be

achieved without effective budgetary control system.

No system of planning can be successful without

having an effective and efficient system of control. Budgeting is

closely connected with control. The exercise of control in the

organization with the help of budgets is known as budgetary

control. The process of budgetary control includes

Preparation of various budgets

Continuous comparison of actual performance with the

standard or the budgetary performance.

Revision of budgets in the light of changed circumstances.

A system of budgetary system should not become

rigid; there should be enough scope for flexibility to provideindividual initiative and drive, budgetary control is an important

device for making the organization more efficient on all fronts. It is

an important tool for controlling and achieving the organizational

objectives.

STEPS INVOLVED IN BUDGETARY CONTROL SYSTEM:

Establish a plan or target of performance, which coordinates

all the activities of the business.

Record the actual performance.

Compare the actual performance with the standards set.

Calculate the variances and analyze the reasons for the

difference.

16

7/29/2019 Budg Ting

17/81

Take the necessary corrective action to set the actual

performance right.

OBJECTIVES OF BUDGETARY CONTROL:

To act as a guide for the management decision making when

unforeseen conditions affect the business.

To coordinate all the activities of the business

To plan and control income and expenditure so that maximum

profitability is achieved. To combine all the levels of management in preparation of the

budget so that there is individual initiative.

To direct capital expenditure in the most profitable direction.

To provide a benchmark against which actual results can be

compared.

To guide the management to remedy a given situation.

To ensure that sufficient funds and working capital is available

for the efficient functioning of the organization.

To clearly lay down responsibility and authority of each

employee so that valuable time is not wasted.

ADVANTAGES OF BUDGETARY CONTROL:

1. Budgeting helps to coordinate, integrate, and balance the

efforts of various departments in the light of the overall

objectives of the enterprise.

2. Budgets compel management to plan for the future and

become more effective and efficient in administrating the

business operations, it also instills into the manager the habit

of evaluating carefully their problems before making a

decision.

17

7/29/2019 Budg Ting

18/81

3. Budgeting increases the participation of the employees in the

policy formulation and implementation, thus increasing their

morale and motivating them to work in harmony with the

organizational goals.4. Budgeting helps in proper utilization of existing resources,

both human and capital and also helps in minimizing wastage.

5. Budgeting improves the quality of communication as all the

procedures and rules are written and communicated to all the

employees in the organization, which results in better

understanding and harmonious relations among managers

and subordinates.

6. Budgeting helps the management to focus on significant

issues affecting the business, thus facilitating management by

exception and also helps in saving the precious time of the

top management by not involving in day-to-day affairs.

7. Budgeting measures efficiency and thereby enables self-

evaluation by the management. It also indicates the progress

made in attaining the enterprise objectives.

8. Budgeting facilitates control as all the relevant details are

clearly laid down. It also helps in making the management

more cost conscious.

CHARECTERISTICS OF A GOOD BUDGETING:

A good budgeting system should involve persons at different

levels while preparing the budgets. The subordinates should

not feel any imposition on them.

There should be a proper fixation of authority and

responsibility. The delegation of authority should be done in a

proper way.

18

7/29/2019 Budg Ting

19/81

The targets of the budgets should be realistic, if the targets

are difficult to be achieved then they will not enthuse the

persons concerned. A good system of accounting is also essential to make the

budgeting successful.

The budgeting system should have a whole-hearted support

of the top management.

The employees should be imparted budgeting education.

There should be meetings and discussions and the targets

should be explained to the employees concerned.

A proper reporting system should be introduced; their actual

results should be promptly reported so that their performance

appraisal is undertaken.

19

7/29/2019 Budg Ting

20/81

BUDGETING FACTORS AT TECUMSEH PRIVATE

LIMITED

PROCUREMENT:

Modes of procurement: There are two main modes of

procurement of raw material.

1) DIRECT PROCUREMENT: - Direct procurement means that the raw

materials are directly identifiable as part of the final product and are

directly used on machine.

2) CONVERSION: - In this process the base material is being

converted into final products through various processes applied on

to shape them and give them the need satisfaction power.

Conversion process not only converts the material into final

products but also gives an ultimate solution.

SOURCE OF PROCUREMENT:

It has mainly two sources of procurement of raw material.

1) DOMESTIC: - In this system mainly the procurement of raw

materials can be made from with in the country.

20

7/29/2019 Budg Ting

21/81

2) IMPORTED: - In this system the procurement of raw materials can

be made from outside the country.

STRATEGIES OF MATERIALS MANAGEMENT: - The following

are the strategies followed by materials management in Tecumseh

Product India Ltd.

Two sources for all materials: Even though there is shortage of supply

from one supplier, it could be accommodated by the other source.

Price: The price can be fixed based on the competitors price.

Quality: Quality of materials differs from one supplier to the other.

Decision making: The activity of making a decision to buy the material

directly from supplier or to import the same.

PLANNING: - Budget planning determined how much of which

material, components, goods, labour, and other requirements are

needed and when. This activity is the responsibility of the planner or

controller. Planning process initiates coordination and classification

of sub goals to achieve major corporate goals.

TYPES OF BUDGETS: - The budgets are usually classified

according to their nature. The following are the types of budgets

which are commonly used:

21

7/29/2019 Budg Ting

22/81

(A) CLASSIFICATION ACCORDING TO TIME:

(1)Long term budgets

(2) Short term budgets

(3) Current budgets

(B) CLASSIFICATION ACCORDING TO FUNCTIONS:

(1)Operating budgets

(2)Financial budgets

(3)Master budgets

(C) CLASSIFICATION ACCORDING TO FLEXIBILITY:

(1)Fixed budgets

(2)Flexible budgets

(A) ACCORDING TO TIME:

1) Long term Budgets: The budgets are prepared to depict long term

planning of the business. The period of long term budgets varies

between five to ten years. The long term planning is done by the

top management; it is not generally known to lower levels of

management. Long time budgets are prepared for some sectors of

the concern such as capital expenditure, research and development,

22

7/29/2019 Budg Ting

23/81

long term finances, etc. These budgets are useful for those

industries where gestation period is long i.e., machinery electricity,

engineering etc.

2) Short Term Budgets: - These budgets are generally for one of two

years and are in the form of monetary terms. The consumers foods

industries like sugar, cotton, textile, etc. use shorter, budgets.

3) Current Budgets: - The period of current budgets is generally of

months and weeks. These budgets relate to the current activities of

the business, according to ICWA London. A current budget is a

budget which is established for use over a short period of time and

is related to current conditions.

(B)CLASSIFICATION ON THE BASIS OF FUNCTION: -

1. Operating budgets: - These budgets relate to the different

activities or operation of a firm. The number of such budgets

depends upon the size and nature of business. The commonly used

operating budgets are:

a) Sales budget

b) Production budgetc) Production Cost budget

d) Purchases budget

e) Raw Materials budget

f) Labour budget

g) Plant Utilization budget

h) Administrative and selling expenses budget, etc.

23

7/29/2019 Budg Ting

24/81

The operating budget for a firm may be

constructed in terms of programmers or responsibility areas, and

hence may consist of:

(i) Programmed Budget(ii) Responsibility Budget

(i) Programmed Budget: It consists of expected revenues and costs of

various products or projects that are termed as the major

programmers of the firm. Such a budget can be prepared for each

product line or project showing revenues, costs and the relative

profitability of the various programmers. Programmed budgets are

thus, useful in locating areas where efforts may be required to

reduce costs and increase revenues. They are also useful in

determining Imbalances and inadequacies in programs so that

corrective action may be taken in future.

(ii) Responsibility Budgets: - When the operating budget of a firm is

constructed in term of responsibility areas it is called the

responsibility budgets. However responsibility areas may be

classified under three broad categories.

(a)Cost/expense center

(b)Profit center

(c) Investment center

2. Financial Budgets: - Financial budgets are concerned with cash

receipts, disbursements, working capital, capital expenditure,

financial position and results of business operations. The commonly

used financial budgets are;

(a) Cash budget

(b) Working capital budget

24

7/29/2019 Budg Ting

25/81

(c) Capital expenditure budget

(d) Income statement budget

(e) Statement of retained earnings budget

(f) Budget balance sheet or position statement budget

3. Master budget: - Various functional budgets are integrated into

master budget. This budget is prepared by the ultimate integration

of separate functional budgets. According to ICWA London The

master budget is the summary budget in corporations functional

budget. Master budget is prepared by the budget officer and it

remains with the top level management. This budget is used to

coordinate the activities of various functional departments and also

to help as a control device.

(C) CLASSIFICATION ON THE BASIS OF FLEXIBILITY:

1) Fixed budget: - According to ICWA London, fixed budget is a

budget which is designed to remind unchanged irrespective of

the level of activity actual attained. Fixed budgets are

suitable under static conditions. If sales, expenses and costs

can be forecasted with greater accuracy than this budget can

be advantageously used.

2) Flexible budget: - A flexible budget consists of a series of

budgets for different levels of activity. It therefore, varies

with the level of activity attained. A flexible budget is

prepared aftertaking intoconsideration unforeseen changes in

25

7/29/2019 Budg Ting

26/81

the condition of the business. A flexible budget is defined as a

budget which is by recognizing the difference between fixed,

semi-fixed and variable cost is designed to change in relation

to the level of activity.

26

7/29/2019 Budg Ting

27/81

REQUISITES FOR A SUCCESSFUL BUDGETARY CONTROL

SYSTEM: - For making a budgetary control system successful,

following requisites are required: -

Clarifying objectives : The budgets are used to realize

objectives of the business. The objectives must be clearly

spelt out so that budgets are properly prepared. In theabsence of clear goals, the budgets will also be unrealistic.

Proper delegation of Authority and Responsibility : Budget

preparation and control is done at every level of management.

Even though budgets are finalized at top level but

involvement of persons from lower levels of management is

essential for their success. This necessitates proper delegation

of authority and responsibility.

Proper communication system: An effective system of

communication is required for a successful budgetary control.

The flow of information regarding budgets should be quick so

that these are implemented.

Budget Education : The employees should be properly

educated about the benefits of budgeting system. They should

be educated about their role in the success of this system.

27

7/29/2019 Budg Ting

28/81

Participation of all Employees : The success of budgetary

control system depends upon the participation of all

employees of the organization.

Flexibility : Flexibility in budgets is required to make them

suitable under changed circumstances.

Motivation : Budgets are to be implemented by human beings.

Their successful implementation will depend upon the interest

shown by the employees.

BUDGETARY CONTROL

ADVANTAGES LIMITATIONS

Maximization of profit

Proper coordination

Provides specific aims

Tools for measuring

performance

Economy

Corrective action

Creates budget consciousness

Reduced cost

Determines weaknesses

Uncertain future

Revision required

Discourages efficient persons

Problem of coordination

Conflict among different

departments

Depends upon support of top

management

28

7/29/2019 Budg Ting

29/81

COST VARIANCE ANALYSIS.

In Tecumseh Products India Pvt. Ltd. Cost variance analysis is

prepared based upon the actual cost of the period by comparing

actual cost with the budgeted or estimated cost.

The cost variance analysis is the process of analyzing the difference

between budgeted cost allowed for manufacturing a product and

actual cost incurred. It is the process of analyzing flexible budget

variances.

A variance is the variation between the standard or estimated cost

and the actual element. A variance or cost variance is the difference

between standard cost and the comparable actual cost for a

particular period.

Types of Variances:

The following three classes of variances are:

Cost variance:- Direct materials, direct labour overheads.

Sales variance.

Profit or Loss variance.

1. Cost Variance:

Managers make two major types of decisions in the planning and

controlling of costs.

A) Price Decisions.

29

7/29/2019 Budg Ting

30/81

B) Quantity Decisions and the basis of these two

types of decisions.

There are two major sets of cost variances:(i). Price or rate variance and

(ii) Quality usage or Efficiency variance.

The sum of above two variances is the total variance.

2. Sales Variance:

A sales variance shows either the effect on

business changes in quantities of sales or prices obtained for sales

i.e., profit.

3. Profit or Loss Variance:

Profit or loss variance is the difference between

the total cost variance and the sales variance.

MATERIAL COST VARIANCE:

Material cost variance is the difference between the total

standard materials cost (SC) for the actual productions and the

actual cost (AC). It is the difference between the standard cost and

the actual cost of materials.

The formula for material cost variance would be:

MCR = (Standard cost of materials Actual cost of materials)

((SP * SQ) (AP * AQ))

Where SP stands for Standard Price

SQ stands for Standard quantity

30

7/29/2019 Budg Ting

31/81

AP stands for Actual Price

AQ stands for Actual quantity

MATERIAL USAGE VARIANCE:

The material usage variance is equal to difference

between the standard quantity (SQ) required for actual production

and the actual quantity (AQ) used multiplied by the standard

material price (SP).

The formula for material usage variance would be:

MUV = (Standard Qty for actual production Actual Qty) x

Standard Price.

(SQ AQ)*SP

The material usage variance is divided into:

(i) Material Mix or Mixture

Variance

(ii) Material Yield Variance.

MATERIAL MIX VARIANCE:

When a product requires two or more raw materials in its make-up

then that is material mix variance. It is the difference between the

total quantity in standard production, priced at the standard

production, priced at the standard price and actual quantity of

material used priced at the standard price.

31

7/29/2019 Budg Ting

32/81

The formula for material mix variance would be:

MMV = (Standard Qty Actual Qty) x Standard Price per unit.

MATERIAL YEILD VARIANCE:

In industries, it is possible to lie down that output will be a

particular percentage of total input of materials. In particular

situation, it may be given that normal less in production will be 20%

of input of materials. In a case like this, 80% of the total input of

material will be expected output. It actual yield obtained happens to

be different from the standard yield specified, there will be yield

variance is that portion of material usage variance which is due to

difference between actual yield obtained and standard yield

specified.

32

7/29/2019 Budg Ting

33/81

CHAPTER-3

COMPANY PROFILE

33

7/29/2019 Budg Ting

34/81

2.1.COMPANY PROFILE

The company was originally established and registered in 1963 under the name of

USHA REFRRIGERATION INDUSTRIES LIMITED (URIL). Usha Refrigeration

Industries Limited (URIL) started in 1963. URIL manufactured compressors for water

cooler, air-conditioners and air-coolers. Lala Charath Ramji who was from a

renowned industrial family of DCM and Coromendal Group of Companies started

URIL.

In 1970 the URIL was changed to Shriram Refrigeration Limited and the

business was also diversified towards manufacturing of diesel engines and water

coolers. Shriram Industries played a great role in the field and captured more than

50% of the market share in India. Shriram Industries also kept its hands in

international trade and were successful in exporting their products to the neighboring

countries, Nepal and Bangladesh.

In 1980 Lala Charath Ramjis son, Siddharth C. Shriram, became the

chairman cum Managing Director of the company. The period saw sea change in

industrial policy, which resulted in a great change in the industrial sector. In the

process for survival, Shriram went into Tech collaboration with Westing House, US

and was named as Siel Compressors.

Siel Compressors were the first Indian Company to

manufacture compressors. Later Westing House stopped manufacturing compressors

and Siel went into Technological Collaboration with Tecumseh Products Company

(TPC), USA in 1988.

34

7/29/2019 Budg Ting

35/81

Tecumseh means Crouching Panther derived from chief of the Shawnee

Tribe (1768-1813), it started its operations to offer new state of art AW Series to

Indian customers. Subsequently TPC took over Siel Group in1997 and Siel Group

became 100% subsidiary of TPC. As soon as Tecumseh took over the company it

stopped manufacturing water coolers and restricted its production to

CFC/hermetically sealed compressors.

TECUMSEH PRODUCTS INDIA LIMITED (TPIL) was incorporated in New Delhi,

India with limited liability on January 30, 1997. TPIL is principally promoted on

behalf of Tecumseh Products Company (TPC), USA and its nominees hold its shares.

Tecumseh India is a 100% subsidiary to Tecumseh Products Company (TPC) USA,

Which is the worlds only full line, independent manufacturer of compressors. TPC

has 29 manufacturing locations in 4 continents. In India the company has 20 sales

offices and extensive networks of over 200 dealers and more than 600 registered

small-scale manufacturers.

TPC invested $80 million in Indian operation known as Tecumseh

Products India Pvt. Ltd (TPIPL). TPIPL has two states of art manufacturing facilities

at Hyderabad (Andhra Pradesh) and Ballabgarh (Haryana) with CADEM Center at

Hyderabad plant to meet Global Engineering needs.

TPIPL has gained core expertise in Research & Development, AW

Assembly and AW Machine Shops such that it acquired a Lions share of the Indian

Compressor market by gaining 50% share.

35

7/29/2019 Budg Ting

36/81

TPIPL is an ISO 14001 and 9001 certified; American based Multi-

National Company, Which has core expertise in manufacturing compressors (mostly

hermetic) in the air conditioning and refrigeration industry in India. Tecumseh

Products Companys (TPC) entered India through a dual acquisition of Siel

Compressors Limited Hyderabad and the compressor division of Whirlpool India

Limited at Ballabgarh in July 1997. Tecumseh Products India Pvt. Ltd (TPIPL) is the

largest independent manufacturer of both air-conditioning and refrigerator

compressors in India. It has two state-of-the-art manufacturing facilities at Hyderabad

(Andhra Pradesh) and Ballabgarh (Haryana).

Tecumseh India is the preferred supplier to those who deal in the

AC&R Industry in India and in the Middle East, SAARC countries.

36

7/29/2019 Budg Ting

37/81

HYDERABAD PLANT

The plant at Hyderabad manufactures compressors only for the Air-conditioners and

compressors for deep freezers, bottle coolers, and water coolers which are considered

to be the Worlds No. 1 in the 150 million compressor market a year. At Hyderabad

both reciprocating (AW series) and Rotary (RN series) compressors are

manufactured, with an installed capacity of 0.75 and 0.60 million units per annum

respectively. It is spread across 55-acres of land at Balanagar Industrial belt, 15 km

away from the Hyderabad City on the highway line going towards HMT Ltd,

Narsapur Road, and has been accredited with ISO 9001 and ISO 14001 certification

for best operational and environmental practices. The in house application

engineering testing facility is well equipped to constantly improve the performance of

compressors. The CADEM center started in 2001 as a center for Tecumsehs global

design needs. Today CADEM center undertakes not only the in sourced work from its

different manufacturing plants but also outsourced

37

7/29/2019 Budg Ting

38/81

CAD/CAE work from the companies in automobile, aeronautical and

other verticals. Even this engineering facility is ISO 9001 certified.

The Hyderabad plant has six regional offices among which four

offices are at the metro cities: Delhi, Mumbai, Kolkata, and Chennai and the

remaining two are at Ahmedabad and Secunderabad. Besides these there are branch

offices and depots located in prime cities across the country.

The Hyderabad plant also has a network of about 177 dealers across the

nation and are preferred supplies to key original equipment manufactures (OEMs)

like LG, Voltas, Blue Star, Godrej, Videocon, Fedders, Amtrex, Hitachi, etc., TPIPL

Hyderabad plant was successfully in getting the ISO 9001 certification for

maintaining quality of the compressors in 1994 and for the eco friendly environment

maintenance the company has got ISO 14001 certification.

The management has started development activities in the following areas:

Effluent treatment plant

Tree Plantation.

Rainwater harvesting is to increase the ground water level and TPIPL

has the distinction of being the first organization in this regard.

Vermiculture is the process of utilizing canteen food wastage for

converting into natural meaner.

38

7/29/2019 Budg Ting

39/81

DEPARTMENTS OF TPIPL (HYDERABAD):

Human Resource Department

Accounts Department

Attendance and Pay Office (A&PO)

Export Oriented Unit (EOU)

Research and Development (R&D)

Maintenance and Engineering Department

Quality Development of AW assembly

AW Press Shop

AW Machine Shop

Service Center

Dispensary

Chemical and Technological Laboratories

TPIPL Hyderabad has a total of 766 permanent employees as on which includes:

172 officers

232 Staff

362 Workers

39

7/29/2019 Budg Ting

40/81

BALLABGARH PLANT

At Ballabgarh, Haryana TPIPL has invested Rs.200 crores for manufacturing

of Non-CFC compressors for refrigeration appliances. The Ballabgarh plant is one of

the best compressors manufacturing unit in Asia. The plant is extended on 21-acre

land on the Delhi Mathura, National highway and is an ozone-friendly zone. This

manufacturing facility has a production capacity of 1.5 million units per annum. It is

also an ISO 9001 certified facility.

The company strives to provide prompt, accessible after sales services,

and technological assistance. And in such a case it is critical and essential to have a

free flow of manufacturing information between its manufacturing plants and the

other offices like four regional sales offices, two branch sales offices, 9 depots, 194

registered dealers, and 600 registered assemblers nationwide.

40

7/29/2019 Budg Ting

41/81

Tecumseh India deployed a gigabit LAN solution

using updated hardware and passive components. The solution design was based on

layer 3 switching technology, supported by a fiber backbone, on a gigabit interface for

interdepartmental connectivity.

The company now enjoys the benefits of a backbone, which offers high

throughput and bandwidth, and is capable of handling increased load in future. The

links are reliable and has very little downtime. And all this has helped the company to

carry out online ERP transaction with various other nationwide locations.

Tecumseh has notched up significant increase in business volume and

expanded customer base in the last few years, including overseas customers.

II. MARKETS

Competitors:

The Indian compressor industry has been in low gear for the past few years, recording

sluggish top line and moderate bottom line growth. Most companies faced a tough

time maintaining profitability levels. However, this was due to the overall economic

conditions rather than company specific factors. In fact, companies have taken some

tough decisions, in preparation for an economic up turn. In the recent years, the

compressor and drilling equipment industry has undergone a massive restructuring

and consolidation exercise. The several strategic moves made by the companies

helped them emerge leaner and stronger organizations, better equipped to face

challenges.

41

7/29/2019 Budg Ting

42/81

Competition has been constantly intensifying in this industry with more

compressor manufactures going for strategic partnerships and the old players

revamping their operations. Atlas Copco Ltd, ELGI equipments, Kirloskar-Copeland,

BPL, Danfoss Industries, and Ingersoll-Rand Air solutions division are just some of

the major competitors to Tecumseh. Apart from these big names there are many mass

merchandisers which are becoming competitive in the local markets day-by-day.

One major development in the industry that has significantly altered the

markets dynamics has been the merger of Chicago Pneumatic (India) with Atlas

Copco (India) subsequent to the merger of their parents at the global level. This has

implications not only for Atlas Copco, but also for leading players like Tecumseh and

others. Atlas Copco discontinued manufacturing of compressor elements and decided

to assemble the product. According to the company, India lacks comparative

advantage in the manufacturing of compressor elements. Only the financial

performance would reveal the actual benefits of these initiatives.

Ingersoll-Rand hived off its gas compressors and pumps business in line

with its parents decision. Instead, it has decided to focus more on the growth of its

residual businesses. It has also forayed into new areas such as equipment rental and

refrigerator storage systems. These are relatively new businesses and the impact of

these businesses on the future cash flows and its contribution to the top line is yet to

be seen.

42

7/29/2019 Budg Ting

43/81

ELGI has hived off unfavorable businesses in which it did not have a

competitive advantage and decided to concentrate more on core compressor business.

Its Pneumatic break business has already been hived off and its has tapered down the

production of multi-utility vehicles and plans to gradually close the multi-utility

vehicle business in which he does not have enough competitive advantage. It has

rearranged its entire operations by creating separate business units to concentrate on

core products. Apart from these initiatives, ELGI also undertakes turnkey projects for

setting up exclusive service stations for all major manufacturers and offers annual

maintenance contracts for all service station equipments. It has consistently been

increasing its presence in the compressor market to command 11.08% share as of

2009.

Even after such reign exercises taken up by the main competitors of Tecumseh

India, it continues to lead the pack of compressor manufacturers in India with a

whopping Rs. 300.8 crores sales (2004). Even though the market share of Tecumseh

India has come down to 14% (2003-04) from 18% (2002-03), it continues to be the

leader.

Customers:

Tecumseh India is the preferred supplier of compressors for many a best brands in

India, middle East and SAARC countries. Most of its customers are original

equipment manufactures (OEMs), distributors form a minor portion. Tecumseh is a

silent partner powering many big OEMs; few of them are discussed below:

43

7/29/2019 Budg Ting

44/81

Fujitsu General is the fourth Japanese air-conditioner company to enter India after

Hitachi, Matsushita and the $4.5 billion Daikin Industries. Fujitsu General tied up

with Chennai based ETA engineering private Ltd to make the famed O General

brand window and split air-conditioners in Pondicherry sourcing completely knocked

down kits and technology from Fujitsu General. Mr. Yagi, President, Fujitsu General,

inaugurated ETA generals Rs. 30 crore, 60000 units per annum plant in Pondicherry

and formally launched the air-conditioners India. The ETA group plans to invest

similar amount in the second phase and gradually scale up the capacity to 2.5 lakh per

annum, by 2006.

Voltas-Fedders JV was a result of Fedders corporation, NJ, USA and Voltas

Limited, a TATA company, coming together to form a joint venture for the

manufacture of a range of room air-conditioners in India. The joint venture company,

universal comfort products Pvt Ltd is based in Dadra, India. Fedders and Voltas each

have a 50% interest in the joint venture, which will produce room and ductless split

system air conditioners. This way the very first time that such a manufacturing only

alliance has been formed in the air-conditioner industry in India. Voltass operations

are organized into four independent business specific clusters: air-conditioning and

refrigeration business group, international operations business group, unitary products

business group, and engineering products business group. As in 2004, Voltas has sales

amounting to Rs. 143 crores and Rs. 271 crores enjoys a market share of 7.8% and

7.1% in air-conditioning and refrigerator markets respectively.

44

7/29/2019 Budg Ting

45/81

Whirlpool India was formed when Whirlpool Corporation entered into a joint

venture agreement with the TVS group to produce automatic washers at a plant setup

in Pondicherry. A modest beginning was made to establish the whirlpool brand in

India. In 1995 the whirlpool corporation acquired Kelvinator India ltd and entered

into the refrigerator market. Later in 1995, majority ownership was gained in the TVS

joint venture and the two entities were merged to form whirlpool India Ltd. The

whirlpool plant went from having no awareness to claim an awareness of up to 85%

and a market share of 25%. It has achieved a sale of Rs. 54.92 crores in 2004 in air

conditioning equipment with a market share of 2.14%. In contrast to air conditioning

equipment whirlpool is a behemoth in the refrigerators market with Rs. 803 crores

sales and a dominant market share of 29.88% in 2004.

Zamil Air Conditioners (ZAC) was founded in 1974 as one of the first air

conditioning business to be established in Saudi Arabia and today is a leading

international manufacturer of air-conditioning systems and is No. 1 in the Middle

East. ZAC manufactures both consumer and commercial range of air conditioners and

has sales operations in over 55 countries in the Middle East, America, Africa,

Australia and the Far East. The company operations are structured into six Strategic

Business Units (SBUs) supporting six in-house products and service brands as well as

a number of international brands under the OEM sales. The six in-house brands are

Classic, Cooline, Coolcare, Clima Tech, Geoclima, and Kessler Clima Tech. Besides

the several business distinct business units, ZAC is also partners with GE appliances

Europe, since 1997, in the form of joint venture called Middle East Air Conditioners

(MEAC), for manufacturing and marketing of GE brand air conditioners.

45

7/29/2019 Budg Ting

46/81

Haier Electrical Appliance is a china based $9.2 billion consumer durables and

electronics major, Haier Group, has recently taken control of 100% stake in Haier

appliances (India) Pvt. Ltd by buying out the initial Indian promoters. Haier

appliances (India) forayed into the Indian market when the Koreans, LG and

Samsung, had swamped the countrys consumer durable and electronics market. The

company had sought the Governments permission to carry out manufacturing

directly through original equipment manufactures (OEMs) as well as through contract

manufacturers in India. At present, the company is outsourcing its products from

domestic appliances manufacturers such as BPL and Voltas. The company plans to

make India as a production base for exports to neighboring countries in the near

future.

III. OPERATIONS:

Tecumsehs operations can be organized into three business clusters. Each of these

commands into own well defined infrastructure for market coverage and service to

original equipment manufacturers (OEMs).

Compressors for air-conditioning:

Residential Air-conditioners.

Commercial Air-conditioning systems (both room and central) and

contract manufacturing.

Compressors for refrigeration:

Household refrigerators and freezers.

Commercial refrigeration applications including the freezers,

dehumidifiers and vending machines.

46

7/29/2019 Budg Ting

47/81

CADEM center for global design needs and services:

CAD (computer aided-design) for product design, design automation,

re-engineering and cost reduction.

CAE (computer aided engineering) for structural and CFD analysis.

CAM (computer aided manufacturing) for designing tools and moulds.

Software and web development.

TPIPLS Vision:

To provide comprehensive solutions to customers in the field of cooling while

providing autonomous working environment for employees, to tap their creative

potential, bring out the best in them and optimize stake holders returns.

Vision Statement

It is our goal to be the global leader in all of

the Markets in which we choose to participate.

We will pursue disruptive technologies to

redefine our products.

TPILS Mission:

47

7/29/2019 Budg Ting

48/81

To be recognized as the world leader in the supply of refrigerator and

air conditioning compressors.

To provide our customers superior products and services.

To create an environment in which our employees can grow to their

full potential and make difference.

To provide superior value to our stake holders.

To be driven to reach the highest possible standards of excellence in all

our endeavors.

Nothing will be done to compromise our integrity.

Mission Statement

We will leverage our global expertise in mechanical,

electrical, fluid handling, related components and services to

provide comprehensive solution for our customers needs

Compressors, Engines, Electric Motors, Pumps, Electronics and

Controls.

We will be best in class and most cost effective producer by

utilizing the principals of TQM, 6 sigma and lean.

Our organization will modify itself in response to changes

in environment at a pace and amount of change that can be made

without eliminating or impeding our ongoing effectiveness.Incisive, continuous strategic thinking will be well

communicated and shared by the organization.

5-S. Philosophies:

Tecumseh encourages its employees to follow these philosophies, which is the

Japanese way of working:

1. SEIRI (Sorting Out):

48

7/29/2019 Budg Ting

49/81

a. Look around your work area and ask yourself is it really necessary for all

items to be there?

b. Separate items OK re-workable and rejected items.

c. Re- works the re-workable items and disposes off the rejected items.

2. SEITION (Systematic arrangement):

a. Items must be placed in pre fixed locations so that they are accessible and

can be easily used.

b. Items should be clearly identified by labeling them properly.

3. SEISO (Spic and Span):

a. Clean the workplace your self.

b. Clean all the equipment including tables etc., yourself.

4. SEIKETSU (Serene Atmosphere):

a. A clean workplace properly selected and with proper arrangement will

soon become dirty ifSEIRI, SEITON and SEISO are not practiced regularly.

b. To achieve a Serene Atmosphere the three steps ofSEIRI, SEITON and

SEISO should be continuously repeated.

c. We should keep our area of work neat and clean including your own attire.

5. SHITSHUKE (Stick to Self Discipline):

a. Follow rules and regulations strictly.

b. Adhere to timings and respect time.

49

7/29/2019 Budg Ting

50/81

c. Conform to standards while working.

d. Follow the prescribed operational standards.

TPIPLs Quality Policy:

Committed to total customer satisfaction by meeting their evolving needs,

expectations and aspirations stated, implied or latent.

Striving to provide products and service of global quality standards and to

reach a position of leadership in the field of operations, setting new values.

Continuous improvement across the organization and upgradation of product,

technology and process supportive environment, at least const to society shall be the

means to achieve the goals.

The approach will be through proper systems and procedures and total

involvement of employees, vendors and other business associates.

TPIPLs Environmental Policy:

The vision of Tecumseh India is to be a serene green and eco-friendly co-operation

carrying our all its operations contributing to preservation of environment and natural

resources for the benefit at large.

Among others this can be achieved through:

Allocation of company wide priority for sustainable development with total

involvement and commitment.

Evaluation and up gradation of current technologies, products and raw

materials for minimization, handling and disposal of solid, liquid and gaseous wastes.

Realization of tangible objectives and targets set for continual improvement to

control and prevent pollution and conserve resources.

Legal compliance and going beyond setting new standards.

Meeting international expectations such as Montreal protocol, 1987 in phasing

our CFCs as refrigerants in our compressors.

Training and propagation of Knowledge on environment.

50

7/29/2019 Budg Ting

51/81

TPIPLs Key Business Objective:

Set the world industry standard of excellence for customer satisfaction.

Achieve total quality.

To attain and surpass global quality and reliability standards for our products.

Maintain clear technology leadership.

Market share leadership with focus on customer needs.

Meet business and financial commitments.

TPIPLs Seven Deadly Sins:

1. Inconsistent product Quality

2. Slow response to market place

3. Lack of innovative and competitive product

4. Uncompetitive cost structure

5. inadequate employee involvement

6. Unresponsive customer service

7. Ineffective resource allocation

Advantages of 5-S:

51

7/29/2019 Budg Ting

52/81

Operations can be performed without error.

Proceeding in a well regulated fashion resulting in fewer defective items

thereby increasing the overall quality of products.

Operations can be performed safely and comfortably, reducing the chances

of accidents. Machinery and equipment can be carefully maintained, reducing

the number of break downs.

Operations can be performed efficiently, eliminating waste thereby

increasing the efficiency and productivity.

Strategies and processes at TPIPL:

Workplace improvements (5 S Philosophies)

Creativity club

KRAs (improvements/suggestions)

Variable earnings sharing of value addition

Agreement process organization needs

Non conformance reporting /audits

Open house/communication meetings

Team assessment and feedback

Changing life styles.

52

7/29/2019 Budg Ting

53/81

IMPORTANT EVENTS

In the year 2000:

TECUMSEH fully acquired

Sri Ram, Hyderabad

Whirlpool compressor, facility at Faridabad/Ballabgarh.

In the year 2001:

Development of Plant in Ballabgarh

In the year 2002:

Amalgamation with TIPL

In the year 2003:

Voluntary Retirement Scheme

Industrial Unrest and lockout in the first half of the

year.

Export obligations not met during the year.

High foreign outgo.

Obligations met towards customers by importing

finished goods and selling at a loss.

In the year 2004:

Setting up of the CADEM Center

53

7/29/2019 Budg Ting

54/81

In the year 2005:

Setting up of a 100% EOU for export of compressors

and its parts.

Expansion in installed capacity at the Hyderabad plant.

Total foreign outgo reduced drastically.

Improvement in the market for compressors as a result

of an improvement in the market for air-conditioners

and refrigerators.

In the year 2006:

This year export showed a growth of 3 times over

previous years involvement.

AW capacity expansion program

Company has launched two new commercial models of

MLA series compressors.

Has won the Green Tech Environment Excellence

Silver Award in the countrywide competition among

the engineering industries.

In the year 2007:

Tecumseh compressors for china.

Tecumseh posts 84% rise in export earnings.

Tecumseh India to setup rotary compressors unit.

54

7/29/2019 Budg Ting

55/81

BOARD OF DIRECTORS

Mr. Todd W Herrick : Chairman & CEO

Mr. RKP Shankerdass : Director

Mr. MG Ramachandran : Director

Mr. Vipin Sondhi : Managing Director (till Jan 7th, 2007)

Mr. John H Ferguson : Director

Mr. James F Curley : Director (till Nov 7th, 2006)

Mr. Kent B Herrick : Director

Mr. James S Nicholson : Director

Mr. Eric L. Stolzenberg : Director (from Jan 19th

. 2007)Mr. R.K. Sachdeva : Director & CFO (from Nov 7th, 2006)

Company Secretary

T. Venkat

Registered Office

Balanagar Township, Hyderabad-500 037

Andhra Pradesh

Auditors

M/s Price Waterhouse, Chartered Accountants

Bankers

Allahabad Bank

State Bank of Hyderabad

Standard Chartered Bank

ICICI Bank

HDFC Bank

55

7/29/2019 Budg Ting

56/81

3.2.INDUSTRY PROFILE

Indian electronics and IT plays a major role in both the production and exports.

During the year (1992-97), the electronics industry has achieved an annual growth of

20% in production and over 40% in exports.

The production in the year (1997-2002) is targeted at about Rs.380 billion with a

growth rate of 37% and exports at about Rs.490 billion with a growth rate of 52%.

Overall production is based on Indian Electronics industry which is widely distributed

and there are more than 3500 units engaged in the electronic production. Which

include in 13 central public sector units with 29 manufacturing establishments, 65

units in state public sectors, 600 units in organized private sector and more than 2800

units in small scale sectors.

Electronics has made life simple. All of us in some form or other, directly or

indirectly are using electronics goods. Demand for electronics goods has led to the

establishment of many manufactures and development is on day-to-day basis. The

thermal, hydro, nuclear plants and power transmission industries play a vital role for

the establishment of heavy electronics industry.

The industry having a wide scope because of rapid improving technologies because of

such wide applications of electronics, there are several producers in different fields of

electronics, with the announcement of new industrial policy (NIP) in 1991 all the

Indian firms were exposed to global competition and foreign currency transactions in

a big way.

56

7/29/2019 Budg Ting

57/81

ABOUT AIR COMPRESSORS:

Air compressors provide air at pressures higher than atmospheric. Refrigeration

compressors and air conditioning compressors are designed specifically for airconditioning, heat pumping, and refrigeration enclosure air conditioners remove the

heat generated by electronic devices from the inside of cabinets or enclosures.

Industrial air filters reduce the number of particles in the air that passes through

them. Breathing and ventilation air systems provide reliable and safe air supply

sources to workers in hazardous industrial environments.

Compressed air-purgers and vortex coolers are used for spot heating or cooling

applications.

Industrial air filters reduce the number of particles in the air that passes

through them. Air filtration supplies the means to reduce the level of particulates in

the air to a cleanliness standard required by any definition of air conditioning. It

extends from the simple task of preventing lint and other debris from plugging

heating/ cooling coils to removing particles as small as 0.1 micron which could cause

a short circuit on microchips.

Refrigerant compressors are designed specifically for air conditioning,

heat pumping, and refrigeration. Small, stand-alone compressors are not included

within this grouping. Refrigerant compressors are large-scale units specifically

designed to be the heart of an industrial cooling or air-conditioning system (HVAC).

They are integral components of the refrigeration cycle, in which refrigerant gases are

cyclically evaporated and condensed, absorbing heat from the load to be cooled, and

moving to an open environment where it is dissipated. The compressor serves two

main functions: to compress low pressure, low volume gases into high pressure and

temperature gases, and to remove vapor from the evaporator to maintain a low boiling

point. There are three main types of refrigerant compressors: scroll, screw, and piston.

Other compressor styles are available, but they are less common.

57

7/29/2019 Budg Ting

58/81

CHAPTER-4

DATA ANALYSIS

58

7/29/2019 Budg Ting

59/81

ANNUAL BUDGETS

TABLE 1: PRODUCTION BUDGET

AW all Models In Units

Particulars Year

2007 2008 2009

Sale of units 750000 625000 600000

Add: Closing Stock (as on 31st December) 110500 30000 50000

860500 655000 650000

Less: Opening Stock (As on 1st January) 110500 110500 30000

Total Production in Units 750000 544500 620000

GRAPH 1: PRODUCTION BUDGET

750000

544500620000

-50000

50000

150000

250000

350000

450000

550000

650000

750000

850000

Units

2007 2008 2009

Years

Production Budget

INTERPRETATION

Here production budgets for three years i.e., from the year 2007 to2009 are compared. The production, by observation, to the chartabove is self explanatory that the estimations or the budgetedfigures of production in units has constantly decreased andincreased in the year 2009. The slight change in the production ofunits is acceptable as it shows a favorable change.

The product cost figures are available in the followingchart for the reference purpose only.

59

7/29/2019 Budg Ting

60/81

While calculating percentage changes year 2007 is taken as baseyear:The percentage change in the year 2009 decreased to 72.6%.

The percentage change in the year 2009 decreased to 82.67%, but

slightly increased from the year 2008

.TABLE 2: PRODUCTION COST PER UNIT

AW (Domestic and Exports) all models

Particulars Year

2007 2008 2009

AW 1500 Q Actual Material Cost 2387 2417 2782Add:Consumables 181 186 175Rejection Cost 27 25 20Power Cost 100 85 65Wage Cost (Labour) 290 250 278New Lines (Stomat, Talent, andLamination) 30 - -Freight Inwards (1.14%) 29 29 22

Warranty 40 44 38PRODUCTION COST PERUNIT 3084 3036 3380

TABLE3: ACTUAL PRODUCTION

AW all Models In Units

Particulars Year

2007 2008 2009



60

7/29/2019 Budg Ting

61/81

TABLE 4: CALCULATION OF PRODUCTION VARIANCE

CALCULATION OF PRODUCTION VARIANCE

(BUDGETED VS ACTUALS)

In Units

Year Budgeted Actual Variance Result

2007 750000 411013 -338987 Adverse

2008 544500 591323 46823 Favorable

2009 155000 213476 58476 Favorable

1449500 1215812 -233688

GRAPH 2:PRODUCTION VARIANCE

INTERPRETATION

The variance in the year 2007 comparing to budget vs. actual isvery unsatisfactory and the result is expressed as adverse. Thereason behind is, the overestimation of the budgeted figures overactual.

In the year 2008 & 2009, the variance is positive and it isexpressed to be favorable performance.

The overall variance of the three years i.e., from 2007 to2009 is negative. Hence, there is a curious requirement to reviewthe budgets. Concentration of performance appraisal in productionis at most desired.

Note: In the year 2009, the actual direct labour costs are availableonly till March '08 i.e., for three months. Hence budgeted figures forvariance purpose are adjusted for three months.

TABLE 1: DIRECT LABOUR BUDGET

ProductionVariance

-400000-200000

0200000400000600000800000

1000000

20072008 2009

Years

Units

Budgeted Actual Variance

61

7/29/2019 Budg Ting

62/81

Particulars Year

2007 2008 2009

Production in Units 750000 544500 600000Labour hours per unit (in hrs) 3.93 1.93 2.24

Total Hours (in Hrs) 190600 280825 267300

Rate per hour (in Rs.) 78.17 56.32 43.56

Total Direct Labour Amount 119193770 126531000 93169261

GRAPH 1: DIRECT LABOUR BUDGET

119193770 126531000

93169261

0

20000000

40000000

60000000

80000000

100000000

120000000

140000000

DirectLabourCost

2007 2008 2009

Years

Direct Labour Budget

INTERPRETATION

From the above data direct labour budget for three years right from 2007 to2009 are compared. The direct labour cost has increased in tune withdecreased production. This shows there is a lot of expenditure incurred in theyear 2008.

A gradual decrease has been found in the year 2009 comparing tothe base year 2007.

The level of expenditure is controlled up to a maximum level bythorough revisions.

While calculating percentage changes, 2007 is taken as base year.The percentage change in the year 2008 increased to

106.16%, which is beyond the limit. This shows over expenditure.

The percentage change in the year 2009 decreased to 78.17%,showing that the strict management control on this issue in this year.

TABLE 2: ACTUAL LABOUR COST

62

7/29/2019 Budg Ting

63/81

Particulars Year

2007 2008 2009

Production in Units 411013 591323 213476

Labour hours per unit (in hrs) 2.45 2.72 3.74

Total Hours (in Hrs) 167480 217087 56967.5Rate per hour (in Rs.) 68.35 55.99 59.18

Total Direct Labour Amount 91581564 97243000 26974347

TABLE 3: CALCULATION OF DIRECT LABOUR VARIANCE

CALCULATION OF DIRECT LABOUR VARIANCE(BUDGETED VS ACTUALS)


2007 119193770 91581564 27612206 Favorable

2008 126531000 97243000 29288000 Favorable

2009 23292315 26974347-

3682031.8 Adverse

269017085 215798911 53218174

GRAPH 2: DIRECT LABOUR VARIANCE

INTERPRETATION

In The year 2007 and 2008, all the budgeted actual and variancefigures are showing positive expenditures hence the variance is

Direct Labour Variance

-50000000

0

50000000

100000000

150000000

2007 2008 2009

Years

DirectLabourCost

Budgeted ActualVariance

63

7/29/2019 Budg Ting

64/81

favorable, but whereas in the year 2009 the variance is showingadverse as the actual expenditure is exceeding the budgeted figure.

It is suggested that strict supervision may yield favorable results.

Note: In the year 2009, the actual direct labour costs are availableonly till March '08 i.e., for three months. Hence budgeted figures forvariance purpose are adjusted for three months.

TABLE 1: SALES BUDGET

Particulars Year (Rs. In Lakhs)

2007 2008 2009

Domestic Sales: Rate 3765 4492 4205

Quantity17500

010000

010000

0Value (Rs. In Lakhs) 6589 4492 4205Exports: Rate 3600 3918 4145

Quantity57500

052500

050000

0

Value (Rs. In Lakhs) 20700 20570 20725Combined Sales Value (Domesticand Exports):

Value (Rs. In Lakhs) 27289 25062 24930

GRAPH1:SALES BUDGET

64

7/29/2019 Budg Ting

65/81

27289

25062 24930

23500

24000

24500

25000

2550026000

26500

27000

27500

Sales(Rs.in

Lakhs)

2007 2008 2009

Years

Sales Budget

INTERPRETATION

The year 2007 is clearly indicating high sales while comparing to thesuccessive years. It is the combination of total sales includingdomestic and exports. The increase in sales in the year 2008 is dueto excess production.

In the year 2008, the total sales value has drastically decreased dueto less production. Quite improvements are required for furtherrecovery.

In the year 2009, though the production has increased, sales did

not improve. Variation is very huge. Hence, quick redressal to theproblem of sales is desired.

The percentage decreased to 92 and 91 for the years 2008 and2009 respectively compared to base year 2007.

TABLE 2: ACTUAL SALES

Particulars Year

2007 2008 2009

Combined Sales Value(Domestic andExports): 2115514759 2313188784 727495314

Value (Rs. In Lakhs)211551475

9231318878

472749531

4

TABLE 3: CALCULATION OF SALES VARIANCE

65

7/29/2019 Budg Ting

66/81


2007 27289 21155 -6134 Adverse2008 25062 23132 -1930 Adverse2009 6233 7275 1042 Favorable

GRAPH 2:SALES VARIANCE

INTERPRETATION

The budgeted sales value is overestimated to the actual salesthrough which the result of sales budget in the year 2007 and 2008is showing adverse.

In the year 2009, excellent improvement is evident from the abovegraph and as such it indicates favorable result. The performance insales budget in the year 2009 is expressed to be excellent.

Keeping the same spirit, may yield fruitful results andleads to further growth opportunities. Domestic sales are to beincreased as a remedy.

Note: In the year 2009, the actual sales value is available only tillMarch '08 i.e., for three months. Hence budgeted figures forvariance purpose are adjusted for three months.

Sales Variance

-10000

0

10000

20000

30000

2007 2008 2009

Years

Sales(inLakhs)

Budgeted Actual Variance

66

7/29/2019 Budg Ting

67/81

TABLE 1: BUDGETED INCOME STATEMENT

(RECIP, ROTARY AND CADEM)

ParticularsYear (Rs. In

Lakhs)

2007 2008 2009

Net Sales 41159 37632 30707Less: Cost of Sales (total) or COGS 36218 32503 26522

Gross Profit 4941 5129 4185Less: Total Overheads 4698 4639 5106

Profit Before Tax 243 490 -921Add: Other Income/DEPB 1829 1298 1245

CADEM Profitability - - 270Profit (including other income) Before Tax 2072 1788 594Less: Tax Provisions 30 - -Net Profit/Net Income/(Loss) 2042 1788 594

GRAPH 1: BUDGETED INCOME STATEMENT

2042 1788

594

0

500

1000

1500

2000

2500

Profit/Income(in

Lakhs)

2007 2008 2009

Years

Budgeted Income Statement

INTERPRETATION

From the year 2007-2009 there is a gradual decrease in thebudgeted figures of profit or income statement, which is evidentfrom the above chart. This is due to unexpected increase in thevalue of raw materials (copper per kilogram increased thrice to thenormal value).

67

7/29/2019 Budg Ting

68/81

The variation between 2007 and 2008 is negligible as we see only anormal difference, but there is a drastic decline in the year2009almost predicting losses.

The percentage change has been showing a drastic decrease to

87.56% in the year 2008and to 29% in the year 2009 comparing tothe base year 2007.

TABLE 2: ACTUAL INCOME STATEMENT

Particulars Year

2007 2008 2009

Net Profit/Net Income/(Loss) 6192051-

76331610 93310955

TABLE 3: CALCULATION OF INCOME VARIANCE

S

(BUDGETED VS ACTUALS)


2007 2042 62 -1980 Adverse2008 1788 -763 -2551 Adverse2009 149 933 785 Favorable

68

7/29/2019 Budg Ting

69/81

GRAPH 2 : INCOME VARIANCE

INTERPRETATION

There is an over estimation with regards to profits in the year

2007by looking into the chart , as the actual income is very lesscomparing to the budgeted income/profit which has resulted inadverse result. Lack of proper planning is visualized.

Though the budgeted income/profit statement in the year2008 is declined, even then the actual profit went into losses. i.e.,the actual loss is above 7 crores. Hence, the result is adverse.

In the year 2009, due to proper revisions and effectivebudgetary controlling techniques they recouped their profit back.

This is evident by seeing only three months statement, which isabove 9 crores. This is indicated to be excellent progress.

Income Variance

-3000

-2000

-1000

0

1000

2000

3000

2007 2008 2009

YearsBudgeted Actual Variance

ProfitorIncome(Rs.InLakhs)

69

7/29/2019 Budg Ting

70/81

TABLE 1: MATERIAL PURCHASE BUDGET

Particulars Year (In Units)

2007 2008 2009Annual Production 750000 544500 620000Add: Closing Inventory 131400 23140 32806

Quantity 881400 567640 652806Less: Opening Inventory 36000 107438 32903

Materials to be Purchased 845400 460202 619903

GRAPH 1: MATERIAL PURCHASE BUDGET

845400

460202

619903

0100000

200000

300000

400000

500000

600000

700000

800000

900000

Units

2007 2008 2009

Years

Material Purchase Budget

INTERPRETATION

A zigzag curve is framed if a graph is plotted, by

observing the above chart. In the year 2007, material purchase is

very high. This may be due to high production volume.

In the year 2008, a sudden steep decline is visualizedshowing very less material volume. The reason behind is thedecrease in production volume. The performance in this year is verypoor, which can be affidavit by seeing income statements for theyear 2008.

In the year 2009, a good estimation, a proper revise, strict

supervisory control enabled the management to have an effectivecontrol over materials purchased.

70

7/29/2019 Budg Ting

71/81

QUARTERLY BUDGETS

TABLE 1: SALES VOLUME BUDGET

MODEL UNITS

SEP OCT NOV DEC

AW 67541 70805 57060 81169RN 1000 2500 2500 7500AK 750 750 1800 1800AK- Kits 20833 20833 20833 20833AWJ - Kits 8333 8333 8333 8333

Total 98457 103221 90526 119635

GRAPH 1: SALES VOLUME BUDGET

98457 103221 90526

119635

0

20000

40000

60000

80000

100000

120000

Sales

(in

Units)

SEP OCT NOV DEC

Months

Sales Volume Budget

INTERPRETATION

The above mentioned configured figures are the extractsfrom sales volume budget prepared in the year 2009, which is thelatest data.

The models included in the sales volume budget are AW, RN,AK, AK Kits, and AWJ Kits.

Keen concentration required on sales volume in the monthof NOV in the successive years.

Seasonal fluctuations should be considered as very severefactors for sales variances. As the booms and depressions (business

cycles) changes at a fast phase during odd months or off seasonsTABLE 1: BUDGETED INCOME STATEMENT - 2009

71

7/29/2019 Budg Ting

72/81

(RECIP, ROTARY AND CADEM)

Particulars AMOUNT (Rs. In Lakhs)

SEP OCT NOV DEC

Net Total Sales 3102 3302 2804 3961Less: Cost of Sales (total) or COGS:Materials Consumed 2110 2252 1888 2716Copper Hedging savings (50:50) -5 -4 -2 -1Consumables 150 157 134 183Power 50 53 45 64Rejection 16 17 15 21Warranty 10 13 16 19Repairs and Maintenance 15 15 15 15Direct Labour - Variable 79 79 79 79

Fixed Salary - Direct (Unionized) 101 101 101 101Fixed Salary - Indirect (White collar) 97 97 97 97Depreciation - US GAAP - Prod. 100 100 100 100Depreciation - US GAAP - Prod. Bldg 3 3 3 3Depreciation - US GAAP - Admin 4 4 4 4Depreciation - US GAAP - Admincomputers 9 9 9 9Travel 10 10 10 10Administration 81 81 81 81OHSAS implementation 0 0 0 0E&Y Audit fee 9 9 9 9Freight Outwards 50 55 50 68Publicity 4 4 4 4Sea Freight 20 20 13 21Commission 10 10 7 11C&F agents commissions 1 1 1 1Interest 113 113 113 106TDC expenses - Gen & Elec 8 8 8 8Contingency 6 6 6 6

Total Cost 3051 3213 2806 3735

Profit Before Tax 51 89 -2 226DEPB AW 146 146 97 158DEPB RN 0 1 1 4DEPB AK 0 0 0 0Profit (including other income)Before Tax 197 236 96 388CADEM Profitability -19 -20 -7 7Total Profitability 178 216 89 395

GRAPH 1: BUDGETED INCOME STATEMENT

72

7/29/2019 Budg Ting

73/81

INTERPRETATION

The quarterly budgeted income statement mentioned above is thepictorial connotation of the year 2009. The months are taken fromSEP to DEC.

The net total sales are expressed to be satisfactory in the month ofSEP, OCT, and DEC. whereas in the month of NOV, a slight decreaseis notified.

Basically, the total cost of sales is to be controlled as it is anoutcome of the expenditure incurred on material consumed,consumables, power, rejection, lab our, a major difference in freightoutwards and so on.

The risk hedging factors by preparing quarterly budgets is indicated

as one of the effective budgeting control tool.

The profit before tax in the month of NOV is Negative, whereas inDEC an unexpected hike is visualized. The DEPB rate is running at7% in the current year. The profits including other income like DEPBbenefit is leading the profits towards satisfactory paths.

The CADEM Profitability is already in negative figures in the monthof SEP, OCT, and NOV. Hence the total profit ability is the outcome.Expertise guidance, strict supervision, in controlling costs is almost

required for keeping the same growth pace in total profitability.

Budgeted Income Statement

01000

2000

30004000

5000

SEP OCT NOV DEC

Months

Value(inLakhs)

Net Total Sales Total Cost Total Profitability

73

7/29/2019 Budg Ting

74/81

TABLE 1: TOTAL MATERIAL COST BUDGET

TOTAL MATERIAL COST BUDGET

MODEL AMOUNT (Rs. In Lakhs)

SEP OCT NOV DEC

AW 1761 1696 1838 1772RN 54 92 160 121AK 18 18 44 44AK- Kits 124 124 124 124AWJ Kits 49 49 49 49Total 2007 1979 2215 2110

GRAPH 1: TOTAL MATERIAL COST BUDGET

2006 1979

2215

2110

1850

1900

1950

2000

2050

2100

2150

2200

2250

Value(inLakhs)

SEP OCT NOV DEC

Months

Total Material Cost Budget

INTERPRETATION

The quarterly total material cost budget witnessed above is the

clear indication for the months of September to December, 2009.The values are expressed in Rupees in Lakhs for themodels combined, naming AW, RN, AK, AK Kits, and AWJ Kits.

The material cost is moderately high in the month of sep, nov, anddec.

The costs incurred for AK, AK Kits, and AWJ Kits areexpressed to be absolutely normal.

The costs incurred on AW and RN models had drasticchanges. The total material cost control is absolutely satisfied. Theperformance in handling material cost is very high in the currentyear.

74

7/29/2019 Budg Ting

75/81

TABLE 1: TOTAL LABOUR ABSORBTION BUDGET

MODEL AMOUNT (Rs. In Lakhs)

SEP OCT NOV DEC

AW 174 167 181 174RN 5 9 16 12AK 2 2 4 4AK- Kits 12 12 12 12AWJ Kits 5 5 5 5Total 198 195 218 207

GRAPH 1: TOTAL LABOUR ABSORBTION BUDGET

198195

218

207

180

185

190

195

200

205

210

215

220

LabourCost(in

Lakhs)

SEP OCT NOV DEC

Months

Labour Absorbtion Budget

75

7/29/2019 Budg Ting

76/81

INTERPRETATION

Total labour absorption budget in the above chart is the imitation

for the months of SEP to DEC 2009.

The allocation of budget on permanent workers is

constant, whereas on temporary and contract basis workers are

fluctuating. Expenditure on blue collars and technicians is always

desired, whereas opting for badlis who are called to be surplus

workers is to be reduced.

For fruitful results and getting excellent profitability labour

budget controlling is always suggested.

Utilization of skilled labour progressively gives desired

results and it is also possible to curtail down unnecessary

expenditure on untrained workers.

76

7/29/2019 Budg Ting

77/81

CHAPTER-5

CONCLUSION & SUGGESTIONS

77

7/29/2019 Budg Ting

78/81

CONCLUSIONS

The study at Tecumseh Products India Pvt. Ltd. at

Hyderabad Plant is defined to be the most technical and

analytical study. The professionalism that encapsulates the

various degrees of performances at every step of financial

study is like a new game.

The actual subject matter, naming the project work on

BUDGETING and BUDGETARY CONTROL in a

manufacturing concern is the practical exposure drawn out

from the efforts of management of Tecumseh, Hyderabad.

The various budgets called financial budgets, operating

budgets, and their performances are studied and interpreted

according to the actual performance evidenced from past

three years.

The budgets are prepared on the basis of ANNUAL

BUDGETS AND QUARTERLY BUDGETS. By studying annual

budgets, it is well understood that the estimations, their

revisions, are factualized according to the past performances,

which are overestimated in the initial stages and got adjusted

in their successive stages.

Preparation of master budgets, fixed budgets, flexible

budgets are desired to be prepared to have easy and fast

access to the data required by the staff and line management.

As the company incurred huge unexpected losses in the

previous two years there is a lot of requirement to review its

standards, estimations and follow accordingly.

78

7/29/2019 Budg Ting

79/81

SUGGESTIONS

Financial interpretations for each and every budget are

required to be clearly analyzed and frequent revisions for

setting dynamic goals according to the changing market

conditions may lead to the chasing of the actual target i.e.,

becoming the global leader in the markets which ever they

choose to participate.

Good review of mission, not from the point of theory,but required exact practical implementations. Preparation of

complicated data always leads to many conflicts, requires lot

of time and labour and this may delay decision making as well

as the information costs.

Collection of latest market information regarding the

cost of raw materials, quality of raw materials, competitor

prices, alternative suppliers, growth opportunities, the

diversifying marketing expansion, upgradation of technology,

observation of business cycles, SMART production methods,

SWOT analysis, concentration of skilled labour are some of

the important pre-requisites.

As the business of Tecumseh depends basically on

exports up to a larger extent, increasing global standards is a

Budg Ting

Documents

Transcript of Budg Ting